How Important Are Intergenerational Transfers of Time? a Macroeconomic Analysis.

This paper examines the implications of intergenerational transfers of time and money for labor supply and capital accumulation. Although intergenerational transfers of time in the form of grandparenting are as substantial as monetary transfers in the data, little is known about the role and importance of time transfers. In this paper, we calibrate an overlapping generations model extended to allow for both time and monetary transfers to the US economy. We use simulations to show that time transfers have important positive effects on capital accumulation and that these effects can be as significant as those of monetary transfers. However, while time transfers increase the labor supply of the young, monetary transfers produce an income effect that tends to decrease work effort. We also find that child care tax credits have little impact on parental time and money transfers, but that a universal child tax credit would increase the welfare of the rich while the poor would benefit from a means-tested program.

International Business Cycles: What Are the Facts?

Modern business cycle theory involves developing models that explain stylized facts. For this strategy to be successful, these facts should be well established. In this paper, we focus on the stylized facts of international business cycles. We use the generalized method of moments and quarterly data from nineteen industrialized countries to estimate pairwise cross-country and within-country correlations of macroeconomic aggregates. We calculate standard errors of the statistics for our unique panel of data and test hypotheses about the relative sizes of these correlations. We find a lower cross-country correlation of all aggregates and especially of consumption than in previous studies. The cross-country correlations of consumption, output and Solow residuals are not significantly different from one another over the whole sample, but there are significant differences in the post-1973 subsample.

International Transmission of the Business Cycle in a Multi-Sector Model.

Multi-country models have not been very successful in replicating important features of the international transmission of business cycles. Standard models predict cross-country correlations of output and consumption which are respectively too low and too high. In this paper, we build a multi-country model of the business cycle with multiple sectors in order to analyze the role of sectoral shocks in the international transmission of the business cycle. We find that a model with multiple sectors generates a higher cross-country correlation of output than standard one-sector models, and a lower cross-country correlation of consumption. In addition, it predicts cross-country correlations of employment and investment that are closer to the data than the standard model. We also analyze the relative effects of multiple sectors, trade in intermediate goods, imperfect substitution between domestic and foreign goods, home preference, capital adjustment costs, and capital depreciation on the international transmission of the business cycle.

Inflation Targeting Under Asymmetric Preferences

This paper develops and estimates a game-theoretical model of inflation targeting where the central banker's preferences are asymmetric around the targeted rate. In particular, positive deviations from the target can be weighted more, or less, severely than negative ones in the central banker's loss function. It is shown that some of the previous results derived under the assumption of symmetry are not robust to the generalization of preferences. Estimates of the central banker's preference parameters for Canada, Sweden, and the United Kingdom are statistically different from the ones implied by the commonly used quadratic loss function. Econometric results are robust to different forecasting models for the rate of unemployment but not to the use of measures of inflation broader than the one targeted.

A Prudent Central Banker

This paper studies monetary policy in an economy where the central banker's preferences are asymmetric around optimal inflation. In particular, positive deviations from the optimum can be weighted more, or less, severely than negative deviations in the policy maker's loss function. It is shown that under asymmetric preferences, uncertainty can induce a prudent behavior on the part of the central banker. Since the prudence motive can be large enough to override the inflation bias, optimal monetary policy could be implemented even in the absence of rules, reputation, or contractual mechanisms. For certain parameter values, a deflationary bias can arise in equilibrium.

Wage Policy of Firms: an Empirical Investigation.

This paper analyzes the dynamics of wages and workers' mobility within firms with a hierarchical structure of job levels. The theoretical model proposed by Gibbons and Waldman (1999), that combines the notions of human capital accumulation, job rank assignments based on comparative advantage and learning about workers' abilities, is implemented empirically to measure the importance of these elements in explaining the wage policy of firms. Survey data from the GSOEP (German Socio-Economic Panel) are used to draw conclusions on the common features characterizing the wage policy of firms from a large sample of firms. The GSOEP survey also provides information on the worker's rank within his firm which is usually not available in other surveys. The results are consistent with non-random selection of workers onto the rungs of a job ladder. There is no direct evidence of learning about workers' unobserved abilities but the analysis reveals that unmeasured ability is an important factor driving wage dynamics. Finally, job rank effects remain significant even after controlling for measured and unmeasured characteristics.

Trade Liberalization and the Profitability of Domestic Mergers.

It is often thought that a tariff reduction, by opening up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. In this paper, we show, using a simple example, that in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence, trade liberalization will not necessarily reduce the profitability of domestic mergers.

Rank Regressions, Wage Distributions and the Gender Gap.

In this paper, we model the interactions between the distribution of male and female wages under the assumption that any change in the wage distribution of women must be offset by an opposite change in the wage distribution of men.

Investment Under Demand Uncertainty: the Newsboy Problem Revisited.

In this article we study the effect of uncertainty on an entrepreneur who must choose the capacity of his business before knowing the demand for his product. The unit profit of operation is known with certainty but there is no flexibility in our one-period framework. We show how the introduction of global uncertainty reduces the investment of the risk neutral entrepreneur and, even more, that the risk averse one. We also show how marginal increases in risk reduce the optimal capacity of both the risk neutral and the risk averse entrepreneur, without any restriction on the concave utility function and with limited restrictions on the definition of a mean preserving spread. These general results are explained by the fact that the newsboy has a piecewise-linear, and concave, monetary payoff witha kink endogenously determined at the level of optimal capacity. Our results are compared with those in the two literatures on price uncertainty and demand uncertainty, and particularly, with the recent contributions of Eeckhoudt, Gollier and Schlesinger (1991, 1995).

The Transformation Problem : an Aleternative Solution with an Identical Aggregate Profit Rate in the Labor value and the Monetary Space.

The aim of this paper is to demonstrate that, even if Marx's solution to the transformation problem can be modified, his basic conclusions remain valid. the proposed alternative solution which is presented hare is based on the constraint of a common general profit rate in both spaces and a money wage level which will be determined simultaneously with prices.

The Wage Rate and the Profit Rate in the Price of Production Equation: a New Solution to an Old Problem

The aim of this paper is to demonstrate that, even if Marx's solution to the transformation problem can be modified, his basic concusions remain valid.

Reported Job Satisfaction : What Does It Mean?

By reporting his satisfaction with his job or any other experience, an individual does not communicate the number of utils that he feels. Instead, he expresses his posterior preference over available alternatives conditional on acquired knowledge of the past. This new interpretation of reported job satisfaction restores the power of microeconomic theory without denying the essential role of discrepancies between one’s situation and available opportunities. Posterior human wealth discrepancies are found to be the best predictor of reported job satisfaction. Static models of relative utility and other subjective well-being assumptions are all unambiguously rejected by the data, as well as an \"economic\" model in which job satisfaction is a measure of posterior human wealth. The \"posterior choice\" model readily explains why so many people usually report themselves as happy or satisfied, why both younger and older age groups are insensitive to current earning discrepancies, and why the past weighs more heavily than the present and the future.

Heterodox Inflation Stabilization in Argentina, Brazil, and Israel. A Historical Review and Some Stylized Facts

This article presents a review of the stabilization attempts in Argentina, Brazil, and Israel during the 1980’s. Earlier research is summarized and complemented with additional sources of contemporaneous information and a detailed analysis of institutional features. The examination of these episodes underscores the strong economic and empirical relationship between the governments’ fiscal policy and the rate of inflation.

Explaining the Persistence of Commodity Prices

This paper extends the Competitive Storage Model by incorporating prominent features of the production process and financial markets. A major limitation of this basic model is that it cannot successfully explain the degree of serial correlation observed in actual data. The proposed extensions build on the observation that in order to generate a high degree of price persistence, a model must incorporate features such that agents are willing to hold stocks more often than predicted by the basic model. We therefore allow unique characteristics of the production and trading mechanisms to provide the required incentives. Specifically, the proposed models introduce (i) gestation lags in production with heteroskedastic supply shocks, (ii) multiperiod forward contracts, and (iii) a convenience return to inventory holding. The rational expectations solutions for twelve commodities are numerically solved. Simulations are then employed to assess the effects of the above extensions on the time series properties of commodity prices. Results indicate that each of the features above partially account for the persistence and occasional spikes observed in actual data. Evidence is presented that the precautionary demand for stocks might play a substantial role in the dynamics of commodity prices.

Tests of Conditional Asset Pricing Models in the Brazilian Stock Market

In this paper, we test a version of the conditional CAPM with respect to a local market portfolio, proxied by the Brazilian stock index during the 1976-1992 period. We also test a conditional APT model by using the difference between the 30-day rate (Cdb) and the overnight rate as a second factor in addition to the market portfolio in order to capture the large inflation risk present during this period. The conditional CAPM and APT models are estimated by the Generalized Method of Moments (GMM) and tested on a set of size portfolios created from a total of 25 securities exchanged on the Brazilian markets. The inclusion of this second factor proves to be crucial for the appropriate pricing of the portfolios.